Legal Briefing

Whose money is it? Financial disclosure and judicial assistance in changing times

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Global Outlook: Disputes | 02 October 2018

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For a number of decades, The Bahamas has been one of a number of select jurisdictions utilised by high net worth individuals to manage their wealth. In prior times, terms such as tax evasion, and banking secrecy were, in some cases, attached to such practices. As such, these terms became increasingly stigmatic. More euphemistic terms now prevail, such as wealth planning and banking confidentiality. Regardless of the terms, the basic principle which arises, generally at common law and which is enshrined in our local constitution and banking legislation, is that individuals have a right to privacy in relation to their property and banking affairs. While this right to banking confidentiality was once virtually absolute, leading countless numbers of foreign persons to set up bank accounts, form international business companies and trust instruments in The Bahamas, the world has evolved in ways which now challenge the sustainability of the concept. While there have long been mechanisms to obtain banking information such as: letters of request pursuant to the Evidence (Proceedings in Other Jurisdictions) Act 2000, various injunctive relief obtained by a plaintiff, and Norwich Pharmacal orders; an interesting challenge has evolved in the context of mutual legal assistance treaties (MLAT) and the incorporation into local law of various multinational treaties and conventions (convention legislation).

MLAT are agreements between governments in relation to obtaining information to assist with criminal proceedings in the requesting country; meanwhile, convention legislation facilitates a similar objective among convention states without the need for a specific treaty. While such requests may extend to various forms of information, often key are banking records which are typically required in a tracing exercise and/or for the freezing and recovery of assets. While requests for judicial co-operation in relation to banking matters are not new, in particular with civil proceedings they have evolved with respect to criminal proceedings and the worldwide shared goal of combating crime and money laundering. As early as 2003, the Bahamian Supreme Court accepted that, particularly in the context of the global concerns in relation to terrorism post 11 September 2001, a greater emphasis should be placed on providing judicial assistance to foreign countries with respect to criminal matters. Since then, a number of statutes have been enacted or amended to make exceptions to the right to confidentiality where there is a suspicion of criminal activity inclusive of tax crimes.

An incident which highlights the growing trend to seek co-operation under MLAT/convention legislation and the uncertainty as to the scope of such requests in The Bahamas, is the Brazilian car wash scandal (Operacao Lava Jato). In 2015, the government of Brazil made a request to the government of The Bahamas for assistance in obtaining banking information in relation to a number of individuals and entities. Arising from this request, in early 2016, pursuant to an application made pursuant to one of the local Convention Legislation, the Criminal Justice (International Co-operation) Act, an order for disclosure was issued which required a number of local financial institutions to release, essentially, all of the banking records in relation to these individuals and companies, including the names and identities of beneficial owners where applicable. What was unusual about the request and the order was its scope and its targets. In a civil context, requests for banking information are required to be rather precise and the court will not permit a fishing-expedition or to permit someone to utilise disclosure for the purpose of making a case. However, in the criminal context, the court has accepted that, by its nature, the investigation of criminal conduct may require that requests for assistance be rather broad. It is usually impermissible to target persons for disclosure who are non-parties to the proceeding and there must be a very clear reason for doing so. In the criminal context, however, non-parties are afforded less protection as the court has adopted the view that where criminality is concerned as much information as is permissible should be provided so as to assist the foreign government.

The order for disclosure having been made in early 2016, a number of entities impacted sought to challenge the order both in terms of substance and in terms of scope. With regard to substance, none of the parties challenging the order were named as respondents in the local action as none were accused of any actual wrong-doing in the MLAT request. Rather, these entities had merely conducted a very small number of transactions (in all cases fewer than three) with companies affiliated with one of the respondents. As such, each of these entities were non-parties not accused of any crime. As to scope, the Brazilian request quite broadly sought disclosure of all of the banking records of these entities since the inception of the relevant accounts. This was, notwithstanding the fact that, all of the accounts had been operating for many years prior to the transactions giving rise to the Brazilian request with no evidence of any previous connection with any of the named respondents.

While the challenge to the order, by the non-parties, yielded a partially positive result in terms of scope, with the judge using a ‘blue pencil’ and significantly restricting the category of information which the banks were required to disclose; the court declined to set the order aside on substantive grounds. Accordingly, the court held essentially, that judicial assistance in criminal matters required the utmost degree of cooperation even where it related to non-parties and where there was a limited connection between the non-parties and the actual persons being investigated.

The decision aforesaid is currently under appeal, and the order for the banks to disclose the information has been stayed. However, in the interim, it may be said that the recent decision suggests that the concept of banking confidentiality may be functionally outdated. Should the Court of Appeal ultimately maintain the disclosure order, it would arguably open the floodgate for foreign tribunals to make sweeping requests, merely, upon the suspicion that certain parties may be connected to a criminal enterprise with very limited evidence in support of such suspicions.

Of course, MLAT/convention legislation only arise in a criminal context and it may be said that innocent persons have nothing to fear. However, in today’s global world where transactions are largely digital and can be routed through numerous unknown intermediary sources, it is not inconceivable that average law abiding citizens could find themselves in a position where their transactions have passed through an account suspected of criminal activity. In such a case, it would appear that these individuals would be as susceptible to having their bank account information disclosed, and perhaps even to having their bank accounts frozen, as the actual targets of the investigation. Therefore, as the world becomes more and more sensitive to the connections between finances and criminality, it would appear that the value of banking confidentiality has, somewhat, diminished. Of course, international players all remain optimistic that the receiving court of an MLAT/convention legislation request will not act simply as a rubber stamp; but rather, shall only order a bank to disclose information about its customer’s account where there are good grounds for thinking the money in the bank is the plaintiff’s money or the proceeds of crime.